USAir Group yesterday said it expects a roughly $180 million pre-tax loss for the third quarter, and announced plans to trim 2,500 full-time jobs.
"This loss is occurring in the third quarter, which traditionally is the most profitable period for U.S. airlines," said Renee Shaker, a senior airline analyst at Moody's Investors Service. The period includes July and August, which are the peak travel months, as well as September, Shaker said.
A high-yield trader said USAir's 10% debt of 2003 lost about 1/2 point yesterday. The work-force cuts will begin in November and be completed during the first half of 1994.
Several factors converged to hit USAir especially hard, Shaker said, noting that the 5% wage concessions that some employees agreed to last year have expired. A USAir source said the concessions ended in July.
USAir is also battling with Southwest Airlines Co. over Southwest's entrance into Baltimore, forcing USAir to cut fates on some routes. The airline also has to take charges related to the labor force reductions.
In a release issued by the company, USAir Group Chairman Seth E. Schofield said, "Consumers are becoming increasingly price sensitive, and we are witnessing a resurgence of low fare competition from airlines whose cost structure enables them to offer the lower prices that consumers demand."
Schofield was disappointed that 1993 revenues, while significantly above last year's levels, failed to meet expectations this summer, the release says.
In addition to the third-quarter loss, USAir also expects operating and net losses for the year, the release says. The third-quarter loss will include a $75 million non-recurring charge. The $75 million charge is for expense associated with severance, early retirement, and other personnel-related expenses.
"In the face of the these projected losses, USAir is taking immediate steps to lower projected 1994 operating costs by approximately $200 million," Schofield said in the release.
The company also said 1993 results would include a $44 million one-time pretax charge for a routine retroactive change in the method of accounting for post-employment benefits for inactive employees. The charge is a non-cash expense, and will not be reflected in third quarter results. It will be retroactive to Jan. 1, 1993.
"For USAir to remain competitive in the new realities of the market-place, we must reduce costs and find ways to restructure our organization to make it more efficient," Schofield said.
"The attempt to reduce costs is essential," Shaker said.
While in the long term the company will benefit from a British Airways equity investment and code sharing agreement announced earlier, in the short term the company must bring down its cost structure. It must particularly cut costs if Southwest decides to enter more of its routes.
"Southwest has a very effective formula for the routes in which it operates," Shaker said. "It has a very low cost structure."
Southwest gets more productivity from its labor force, flies a single type of aircraft, and operates no hubs, which have expensive infrastructure costs associated with them.
Operating a single type of aircraft helps Southwest save on maintenance and training, and allows the airline to use parts interchangeably. It also enables more flexible crew scheduling because a pilot who operates one type of aircraft is not necessarily familiar with another, Shaker explained.
Moody's Investors Service currently assigns a non-investment grade Ba3 rating to USAir's senior unsecured debt. The only three airlines with investment-grade ratings are Southwest, which has a Baa1 senior unsecured debt rating; AMR Corp., which has a Baa3 rating; and United Airlines Inc., which has a Baa2 rating. If Moody's rated American Airlines Inc. alone without its holding company, AMR, it would have an implied Baa2 rating, Shaker said.
In other news, Securities Data Co. reported that U.S. corporate straight debt issues hit an all-time high of $346 billion in the first nine months of 1993. During all of last year, which set a record, a total of $317 billion was raised. Securities Data's figures exclude mortgage-and asset-backed issues.
Issue Record Smashed
"Exceptionally low interest rates have also brought about the reemergence of the 100-year bond, issued by both Walt Disney and Coca-Cola this year," a Securities Data release says.
Merrill Lynch & Co. captured top underwriting honors as expected, the release says, underwriting deals raising $80 billion of proceeds. Goldman, Sachs & Co. finished second, raising $59 billion, and Lehman Brothers raised $45 billion, to take third place.
Elsewhere yesterday, US West Communications Inc. is calling eight long-term debt issues totaling roughly $1.1 billion to "take advantage of current favorable interest rates."
US West, owner of US West Communications, said one-time cost linked to the redemptions would lower 1993 net income, but future net income would improve because of the interest savings gained by replacing the called debt with lower cost debt.
Asked how the company planned to fund the calls, Blair Johnson, a U S West spokesman, replied, "We expect to use some short-term debt as an interim measure before replacing it with permanent financing."
One-time costs tied to the redemption are expected to trim US West's third quarter 1993 net income by $27 million, or six cents a share. The amount was included in the $3.8 billion after-tax reduction in third quarter net income that US West announced on Sept. 17.
Yesterday's redemptions included, US West will have redeemed $3.4 billion of high coupon debt since the beginning of 1992. Seven of the eight issues announced as called yesterday have a Nov. 1, 1993, redemption date. The redemption date for the other issue is Nov. 15.
The debt was issued in the former names of the three telephone companies that were combined to create US West Communications.
The Mountain States Telephone and Telegraph Co. debt is: * An issue totaling $114 million of 7 3/8% debentures due Nov. 1, 2011. They are redeemable at 102.86% of par. The semiannual interest payment due Nov. 1, 1993, will be mailed separately to registered bondholders. * An issue totaling $230 million 7 3/4% debentures due June 1, 2013. They are redeemable at 103.32% plus accrued interest. * An issue totaling $225 million of 8% debentures due Sept. 15, 2017. The debentures are redeemable at 104.02% plus accrued interest.
Northwestern Bell Telephone Co. debt is: * An issue totaling $67.8 million of 7% debentures due Jan. 1, 2009. They are redeemable at 101.90% plus accrued interest. * An issue totaling $145 million of 7 7/8% debentures due Jan. 1, 2011. They are redeemable at 103.04% plus accrued interest. * An issue totaling $130 million of 8 1/8% debentures due March 15, 2017. They are redeemable at 103.94 plus accrued interest.
Pacific Northwest Bell Telephone Co. debt is: * An issue of $50 million of 6 3/4% debentures due Dec. 1, 2007. They are redeemable at 101.96% plus accrued interest.
The preceding issues have a Nov. 1, 1993 redemption date. The following one for the Mountain States Telephone and Telegraph Co. has a Nov. 15 redemption date: * An issue totaling $150 million of 7 7/8% debentures due Nov. 15, 2016. The debentures are redeemable at 103.92%. The semiannual interest due Nov. 15, 1993, will be mailed separately to holders.